Around the country, politicians and government employees have committed future taxpayers to pay for pensions that should have been funded at time of employee service. Things must change. The problem is huge.
Categories
Tag: pension tsunami
Categories
Stop Digging
If you find yourself in a hole, stop digging.
When it comes to pension systems, the State of Illinois appears shovel in hand, digging to the bottom. The state’s five public employee retirement systems face a combined unfunded liability of $100 billion dollars; they have only 40 percent of what they need to pay the benefits politicians negotiated with public employee unions — the lowest funding level of any state.
The Daily Herald, a suburban Chicago-area paper, calls a spade a spade: “The shortfall is due largely to decades of legislators skipping or shorting the state’s pension payments — a practice that allowed them to spend that money elsewhere.”
Today, Illinois’ legislators will trudge into Springfield for an expected vote to fix the broken system.
“This deal was made by Speaker Madigan and other politicians behind closed doors,” charges Illinois Policy Institute CEO John Tillman, who fears it makes matters worse.
The bizarre attempt at a fix allows the Legislature to be sued before the Illinois Supreme Court if it fails to make its required ongoing contributions into the pension fund.
The legislation also contains a guarantee clause prioritizing pension payouts before most other state spending. As Tillman says, “Not caring for the poor. Not public safety. Not education.”
And a much ballyhooed option for employees to switch to a 401(k)-style plan turns out to allow only 5 percent of employees to so choose, blocking the rest.
Pay what was promised, but stop digging! Move new workers to 401(k) style plans they can own, with employer contributions handed over every pay period.
This is Common Sense. I’m Paul Jacob.
Next Tuesday, Cincinnati voters will decide Issue 4, a charter amendment petitioned onto the ballot by a citizens’ group called Cincinnati for Pension Reform (CPR).
If passed, the initiative will put newly hired city employees into a 401(k)-style retirement program, while protecting the pensions of current city retirees and workers through annual audits, publicly reported results, and requiring the city to take steps to close any fund deficit.
The Queen City’s public pension system is in deep trouble. Even by the city’s rosy accounting, it’s only 61 percent funded, with a whopping unfunded liability of $862 million. Moody’s recently downgraded the city’s credit rating, specifically because of its pension liabilities.
Nonetheless, Issue 4 faces fierce opposition from a group “primarily funded” by government workers’ unions. “In just two weeks,” reports the Cincinnati Enquirer, “the committee raised $207,970 … It received contributions from only two individuals, totaling $750, including a $500 contribution from former acting Cincinnati city manager and current Dayton city manager Tim Riordan.”
Jeff Harmon, president of a union representing 850 city workers said, “This measure is going to lead to higher taxes and possible lawsuits for the city and would potentially bankrupt Cincinnati.”
Why would actually funding the promises the city has already made to workers “lead to higher taxes” or “bankrupt Cincinnati”?
Who would file those “possible lawsuits”? It doesn’t take a genius to realize that this is a polite way of saying: If you don’t vote the way we want, we’ll sue.
This is Common Sense. I’m Paul Jacob.
When it comes to the full faith and credit of the Great State of Illinois, three major credit rating companies judge it the lowest in the union. The problem is that state politicians made pension promises they didn’t pay for and still aren’t.
How bad is it? Illinois’s total unfunded pension liability now tops $200 billion dollars – that’s roughly 250 percent of the state’s annual revenue. And growing.
But take, heart!
Gov. Pat Quinn just said that the massive pension shortfall will grow at a slower pace than previously thought, $5 million (instead of $17 million) a day.
Whoopee!
Folks at the Illinois Policy Institute are a little mystified by this pronouncement, though. The projection seems based more on wishes and hope than the straight dope. Besides, “this isn’t the first time the state has predicted that the growth in the state’s unfunded liability would slow,” Institute Senior Fellow Jonathan Ingram writes, noting that “the exact same prediction was made last year based on the actuarial projections made in fiscal year 2011. The systems predicted that the unfunded liability would grow by ‘only’ $5.3 billion in fiscal year 2012.”
The conventional wisdom blames too many years of the legislature shorting the annual payments to the five public-employee retirement funds.
Another way to look at it is simply that politicians are a whole lot better at promising than delivering, and defined benefit (rather than defined contribution) pensions are too tempting to trust to any politician.
This is Common Sense. I’m Paul Jacob.
In California and Rhode Island (to name just two states) cities are going bankrupt … or closing libraries and parks and cutting police and firemen to forestall going belly up. Meanwhile, they continue paying huge sums in employment benefits for folks who used to work at city hall, but have since retired into the politicians’ promised land.
Bankrupt cities don’t do so well at paying out those promises, though.
That’s why even many union members in San Jose and San Diego, California, supported the victorious citizen initiatives earlier this year that created a reasonable and workable pension program, and why serious pension reform passed through the legislature and was signed into law in deep-blue, heavily unionized Rhode Island.
In Los Angeles, former Mayor Richard Riordan’s Save Los Angeles campaign has worked mightily to prevent the city’s three pension systems from hitting the outrageous and piggy-bank breaking annual cost of $2 billion by 2017. Unfortunately, Riordan’s group abandoned a petition drive to place a reform measure similar to San Diego’s and San Jose’s on the Los Angeles ballot next Spring. The Service Employees International Union (SEIU) Local 721 claimed credit for blocking the initiative, claiming they convinced thousands of petition signers to withdraw their signatures.
Now, the Los Angeles Daily News reports that, “With no pension ballot initiative to fight, the unions can re-focus their energy and their money on the races for mayor, controller, city attorney and the City Council.”
“We are more freed up now,” said an anonymous union official.
And likely to have even more influence on how the city will be run and financed and managed.
Or should I say, “mis-managed”?
This is Common Sense. I’m Paul Jacob.
Categories
Townhall: Over the Cliff?
Sometimes it seems that politicians have set up for us a Looming Financial Doom.
Why would they do that? And how do we avoid it?
Expanding on the subject of Friday’s Common Sense, I try to tackle both questions in this weekend’s Townhall column, “Over the Cliff.”
The column takes a few long quotations from The Washington Post article, and one short quotation from the actual study. Also linked in the column is a Common Sense from some time back, about public employees gaming the public employee pension system. It’s worth noting that the chief problem with the system is that it is badly rigged. But the gaming doesn’t help.
I use the phrase “cordon off” — it is interesting to remember that “cordon” basically means “rope off,” but that “cordon” doesn’t mean “rope.”
For a previous discussion of the metaphor of the “fiscal cliff,” see “Cliff Notes.”
When you hear talk about “the fiscal cliff,” ask, “Which one?”
This coming January, if Congress and the president fail to take action, every American who pays income taxes will pay more. Also set to increase? Payroll taxes, which every worker pays.
But even if we can avoid falling off those cliffs, another threatens.
It has been identified by finance professors Robert Novy-Marx at the University of Rochester and Joshua Rauh at the Stanford Graduate School of Business, who summarized their recent research paper, “The Revenue Demands of Public Employee Pension Promises.”
The bottom-line? Looking at the pension commitments state and local governments have already made to public employees, the professors “found that, on average, a tax increase of $1,385 per U.S. household per year would be required, starting immediately and growing with the size of the public sector.”
That’s only the average. “New York taxpayers would need to contribute more than $2,250 per household per year over the next 30 years,” according to their analysis. “In Oregon, the amount is $2,140; in Ohio, it is $2,051; in New Jersey, $2,000.”
Politicians have promised lavish pension benefits. And then not funded them. Plus, employees often outrageously game the system, spiking their benefits to the tune of millions over decades of retirement — like the Illinois teacher’s union lobbyist did by teaching a single day in the classroom.
If we don’t get the problem under control, this cliff keeps getting higher, making, as the professors put it, “the $1,385 per-household increase required today seem cheap.”
This is Common Sense. I’m Paul Jacob.
You have no doubt heard about Obama’s recent “gaffe” about “the private sector’s doing fine.”
The private sector, of course, is not doing well, not at all — and it’s suffering from a public sector gone mad: Bailouts, increased spending, increased debt, increased regulation.
But our beleaguered and benighted president was trying to make the point that it’s our public sector that’s doing badly.
And there is something to be said — carefully, with much caution — about public sector jobs. In many states and locales, government jobs are not increasing in number. Well, at least not increasing as fast as bailout mania might lead you to think.
And Josh Barro knows why. Public sector jobs are in decline because public sector compensation has been skyrocketing, depleting resources from state and municipal governments, preventing job increases.
San Jose, for instance, used to have 7.5 employees per 1,000 residents. Now the city’s down to 5.6 employees per thou, “with further cuts expected next year.” Why?
[C]osts for a full-time equivalent employee are astronomical and skyrocketing. San Jose spends $142,000 per FTE on wages and benefits, up 85 percent from 10 years ago. As a result, the city shed 28 percent of its workforce over that period, even as its population was rising.
Blame it on pensions, grossly over-promised.
It’s a problem politicians have: They like to dole out favors. And pensions are something they can promise without funding fully, making “future politicians” (uh, taxpayers) pay (like, uh, now). It’s the scandal of the age.
But I wonder if Obama would ever ’fess up to the real nature of the problem
This is Common Sense. I’m Paul Jacob.